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Joint Subcommittee Reviewing Tax Preferences Considers Tobacco Taxes, Film Incentives

The Joint Subcommittee to Evaluate Tax Preferences met on September 17.  This body, which consists of legislators from the House Finance Committee and the House Appropriations Committee, as well as members of the Senate appointed upon the recommendation of the Chair of the Senate Finance and Appropriations Committee, has a broad mandate to “oversee the evaluation of Virginia’s tax preferences, including but not limited to tax credits, deductions, subtractions, exemptions, and exclusions.”  House Finance Chair Vivian Watts was elected as chair of the Joint Subcommittee and outlined several principles by which she plans to evaluate tax preferences, including administrative soundness, fairness, legal precedents, the degree to which a tax preference reflects the modern economy, and the rationale for a tax preference.

The September 17 meeting focused on two study areas assigned to the Joint Subcommittee:  cigarette and tobacco taxes and the state’s tax credits for motion picture production.  For several years, language in the state budget has directed the Joint Subcommittee to study options to modernize the state’s tax on cigarettes, to include the tax treatment of vaping products.  Staff from the Division of Legislative Services and the Department of Taxation provided an overview of recent legislative and budgetary actions that changed the taxation of certain tobacco products, as well as an explanation of discrepancies between language set out in the Code and provisions in the state budget (which supersede Code language).  For example, legislation in 2024 created a two-tier system of taxation of vaping products, depending on whether the product was a “closed” or “open” (refillable) system (one of the patrons of the legislation indicated that this difference was intended to reflect varying levels of nicotine in the two types of products) – but the superseding budget language retains an across-the-board cents per milliliter tax (which was increased in the 2024 Appropriation Act).  Staff presentations are available at this link and this link, respectively.

The Joint Subcommittee also received a referral from the Chairman of the House Appropriations Committee earlier this year requesting a review of legislation that was considered in 2024 that would have expanded the state’s Motion Picture Opportunity Tax Credit, which is a refundable individual and corporate income tax credit for motion picture production companies spending a certain amount of money on production costs in Virginia.  Staff explained how the credit is administered, briefed members on a 2017 evaluation of the program conducted by the Joint Legislative Audit and Review Commission, and provided several policy options for members’ consideration, including an option to eliminate the credit program in favor of a tailored incentive program.  Slides from the Division of Legislative Services are available at this link.

Members indicated that they will continue to discuss these topics at the Joint Subcommittee’s next meeting.  Two additional meetings are planned prior to the next General Assembly session.

VACo Contact:  Katie Boyle

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